How CETA’s investor protection rules could result in a boom of investor claims against Canada and the EU
17
PR SPEAK: WHAT’S WRITTEN IN CETA72 REALITY CHECK: WHY IT PROVIDES ONLY FALSE COMFORT
Final award: A tribunal can award “only” mon-
etary damages or restitution of property (Chapter
8, Article 39). According to the EU, this means
that an order of a tribunal “cannot lead to the
repeal of a measure adopted by Parliaments in
the Union, a Member State or Canada.”75
This won’t stop government from “voluntarily” repealing
measures when a major lawsuit has been filed or threatened
by a deep-pocketed company. Examples of such regulatory
chill include the watering down of environmental controls for
a coal-fired power plant when Germany settled a claim by
Swedish energy company Vattenfall (see page 6) and New
Zealand’s announcement that it will delay its plain-tobacco-
packaging legislation until after Philip Morris’ claim against
Australia’s anti-smoking rules has been resolved.76 This
chilling effect on government regulation is arguably the main
function of the global investment regime.
Appeal mechanism: An Appellate Tribunal
is hereby established to review awards […]
The Appellate Tribunal may uphold, modify or
reverse a Tribunal’s award based on (a) errors
in the application or interpretation of applicable
law; (b) manifest errors in the appreciation of
the facts […] (c) the grounds set out in Article
52 (1) (a) through (e) of the ICSID Convention”
(Chapter 8, Article 28)
This could potentially contribute to more coherent decisions
but does not fix any of the fundamental problems mentioned
above (privileging of foreign investors, not fully independent
tribunals, one-sidedness of the system … etc). It should also
be noted that the mandate of the Appellate Tribunal would be
very limited, and would fall short of a juridical revision proce-
dure as known under national law. For example, collection of
new evidence or hearing of additional experts and witnesses
would be excluded.
Binding interpretations: “Where serious con-
cerns arise as regards matters of interpretation
that may affect investment, the Committee on
Services and Investment may […] recommend to
the CETA Joint Committee the adoption of inter-
pretations of this Agreement. An interpretation
adopted by the CETA Joint Committee shall be
binding on a Tribunal.” (Chapter 8, Article 31)
In practice, it is very difficult to get consensus on binding
interpretations. In the 20-year history of NAFTA, which has a
similar clause, agreement has been reached for only two such
interpretations, despite a wave of investor claims. Also, arbi-
trators have often been unwilling to accept the “binding” inter-
pretations and annexes intended to rein in their discretion.77
CETA contains a number of exceptions scat-
tered across the deal, such as for “reasonable
measures for prudential reasons” in the financial
sector, for example, to ensure “the integrity and
stability of a Party’s financial system” (Chapter
13, Article 16) or “to protect human, animal or
plant life or health” (Chapter 28, Article 3.2)
The exceptions are usually limited to a few sectors and to
only some investor rights. They are also formulated in nar-
row terms, putting the burden of proof on governments. For
example, safeguard measures to ensure financial stability have
to be “strictly necessary” and may only be taken “in exceptional
circumstances” with “serious difficulties for the operation
of the economic and monetary union”. For policies to tackle
“serious balance-of-payments or external financial difficulties,”
CETA even states that they should “avoid unnecessary damage
to the commercial, economic and financial interests of any
other Party” (Chapter 28, Articles 4 and 5). It will be up to
arbitrators to decide whether a policy was “strictly necessary”
or whether it caused “unnecessary” costs for the investor. This
is an easy hurdle to clear for an arbitrator intent on getting
public compensation for a bank or other investor.
Reservations: CETA’s investment rules are
subject to state-specific reservations relating to
specific economic sectors or types of measures
listed in special annexes. Annex I lists “existing
measures” that are not in conformity with CETA
rules but can be maintained. Annex II lists “res-
ervations for future measures” that governments
will be able to introduce in the future that would
otherwise not be possible under CETA. All sectors
and measures that governments have not explic-
itly excluded them by listing them in the annexes
are automatically covered. (Annexes I and II)
The reservations have severe limitations: Annex I reservations
are subject to a legal ratchet, meaning they can only be changed
in the future if they are made more consistent with CETA. Also,
neither the Annex I nor the Annex II reservations apply to the
most dangerous investor standard, fair and equitable treatment.
Moreover, European member states have little experience with
CETA’s “negative listing” approach where the state has to list
all of its exceptions up front rather than indicating the sectors
it wants covered by CETA. The reservations scheduled by
European governments vary widely and are often inconsistent.
For example, Bulgaria has reserved its ban on fracking but
France, which has a similar ban, has taken no such reservation.